These days, Ben Horowitz is best known as one-half of the venture firm Andreessen Horowitz—where he has the inside track on some of the world’s most promising investment opportunities—but he’s always been a bit of an outsider. Even as one of Silicone Valley’s better-known venture capitalists, he’d rather cite hip-hop lyrics than Harvard Business School case studies when explaining business in his widely read books and blog.
So perhaps it shouldn’t come as a surprise that the venture capitalist with a penchant for straight talk and occasional profanity has ended up investing alongside A-List Angels like Nas. Together with other stars, including Kutcher and Eminem, they helped fund hip-hop lyrics site Rap Genius and encouraged its expansion into a medium for annotating everything on the web. Horowitz also saw a way to add another layer of worth to creators’ work.
“At the end of the day, we think there’s tremendous value being added to the original text,” he told me in 2012. “That’s going to accrue to the original authors and publishers as well as to Rap Genius.”1
Horowitz became accustomed to bouncing between disparate worlds long before he and Netscape cofounder Marc Andreessen launched their venture firm, and decades before his legendary barbeques united stars like Nas with Silicon Valley bigwigs. Born in the UK, Horowitz grew up in Northern California, where his father David Horowitz, then a Marxist intellectual, enmeshed himself with the Black Panthers before becoming disillusioned and turning into a far-right radical (the elder Horowitz is now known for throwing Twitter bombs like “Obama is an American traitor.”)2
The younger Horowitz, who disagrees vehemently with his father’s politics (yet still reportedly pays for his bodyguard during controversial speeches), went on a decidedly different track. After playing football in high school, he left the Bay Area to attend college at Columbia, where he and two friends recorded a hip-hop album under the name Blind Def Crew (somehow, the tracks haven’t made it to major streaming services, although Horowitz annotated part of the group’s oeuvre on Genius). As with Troy Carter, his career as a rapper ended—perhaps mercifully—at the dawn of adulthood, but his love for the genre remained a lifelong affair.3
Horowitz met Andreessen at Netscape and teamed with him to found a cloud computing company called Loudcloud in 1999. They raised $15 million from Benchmark at a $45 million valuation and got an unquantifiable boost from Horowitz’s ability to bring a human element to the tech world. “In Silicon Valley, people always say that an extroverted engineer is one who stares at your shoes rather than his own,” explained Greg Sands, a colleague from his Netscape days. “Ben was an engineer, which meant he had a bit of an awkward user interface, but perhaps his life as an outsider generated empathy. He could get people to work together.”4
Within a couple of years, however, all the dot-com companies Loudcloud relied on for business were falling from the sky like so many frozen iguanas dropping from trees during a Florida cold snap. It wasn’t long before Horowitz concluded that, in order to survive, he had to sell Loudcloud’s core to a bigger competitor and pivot to the software business. Horowitz drew interest from Ross Perot’s EDS and computer giant IBM, but his momentum stalled as negotiations began. With Loudcloud burning cash at a fiendish rate, he needed to find a way to sell quickly—so he flew to Los Angeles with his head of business development to seek advice from Michael Ovitz, the Loudcloud board member who cofounded CAA.
“Gentlemen, I’ve done many deals in my lifetime and through that process, I’ve developed a methodology, a way of doing things,” Ovitz began. “Within that philosophy, I have certain beliefs. I believe in artificial deadlines.”5
After the meeting, Horowitz took Ovitz’s advice and gave EDS and IBM an ultimatum: they had eight weeks to get an offer together or there would be no deal. Seven weeks later, EDS came through with $63.5 million in cash for the heart of Loudcloud’s operation. Horowitz hung on to the software business, which he rebranded as Opsware. It wasn’t the bonanza Horowitz had envisioned when he first started the company, but given the pall that had fallen over tech investors in the meantime, it was much better than the alternative: filing for bankruptcy. And the Ovitz-Horowitz connection served as a reminder of what Hollywood and Silicon Valley had to offer each other, even as the dot-com crash brought the boiling love affair between the two sides to a simmer.
The collision of entertainment-world panache and tech-sector smarts helped Horowitz, but it would take longer to sink in for A-List Angels like Shaq, who didn’t know the importance of equity in his early days. Not long after signing with the Los Angeles Lakers in 1996, the NBA Hall of Famer drove out to see Bill Gross. The Idealab founder suggested teaming up on a new company: Big.com. He already owned the URL and wanted to create an Amazon competitor, envisioning Shaq as its public face.
“I wanted to do a deal where I gave him equity in the company,” Gross told me in his Pasadena offices. “He was in here. Actually, he was in this chair. He said, ‘I’m hungry. Can you go get me like six Double-Doubles at In-N-Out?’”6
According to the Idealab founder, cheeseburgers weren’t the only compensation Shaq demanded. He wanted $20 million—in cash. Gross was willing to give him that much in equity, but the basketball star wouldn’t have it. He figured his compensation for deals off the court ought to be more than his salary as a player, and the Lakers weren’t paying him in equity (though of course that would have worked out better for him: the value of the franchise has increased many times over since then).
“He was excited for the same reasons we were, too, because we wanted to use the benefits of Hollywood marketing, entertainment branding, storytelling—all those things are some of the strengths of companies here in L.A.,” says Gross. “That’s an advantage that a company here could have compared to, say, a company in Silicon Valley, which really is more engineering-focused, but doesn’t have the marketing and entertainment groups. Shaq wanted to do it for those reasons.”
But the sticking point seemed to be compensation. Shaq’s distaste for equity matched that of his Hollywood compatriots at the time. The basketball star attributes his stance, at least on his part, to inexperience. “When you’re younger, you’re trying to keep it all in cash.…I was probably only making six, seven million dollars a year, so I needed all the cash,” he says. “Once you accumulate a lot of cash, you can say, ‘Okay, now I’ve got enough cash.’”7
Reportedly, part of the reason Shaq ditched his first team, the Orlando Magic—and left some money on the table—was the lure of Los Angeles, where he figured he could more than make up the salary difference with the help of his side hustles in film and music. By 2002, he had won three consecutive NBA championships with the Lakers and his career earnings had exceeded $100 million on the court. Along the way, he felt more comfortable taking smart risks when they arrived. And, like any successful investor, he had an important ally on his side: luck.
“I got into Google by accident,” he says. “I was in a restaurant playing with some kids.”
The children just so happened to belong to a high-profile investor whom Shaq declines to name.
“He said, ‘Shaq, I like you, I got something for you,’” the basketball star recalls. “I looked at it.”
Shaq already knew about Google, and it seemed like a good business to him. He remembered hearing Amazon founder Jeff Bezos say that if you invest in things that make the world a better place, it’ll always be a good deal. A search engine, type in anything you want and it pops up? That’s gonna be the business of the future, Shaq thought to himself. After his agent introduced him to fellow Google investor Ron Conway—a pioneer of Silicon Valley angel investing, thanks to his early outlays in the search giant and others, including PayPal, Twitter, Dropbox, and Airbnb—Shaq plowed in some cash.8 (Conway politely declined to be interviewed for this book.)9
Bill Gross invested in Google, too—in much more roundabout fashion than Shaq. Idealab had survived the dot-com crash by relying on its war chest, depleted but still considerable, as companies around the tech sector evaporated. “We said, ‘Okay, well, we’re not going to go public, but let’s just make great companies,’” Gross recalls. “‘Let’s look at every industry, and see where are their big problems that need solutions, where entrepreneurship can help them.’”10
In his first few years at the helm of Idealab, Gross had learned two valuable lessons: first, to give the people running his portfolio companies more room to control their own destiny, and, second, to not fall in love with his own ideas. He set up a new rule stipulating that if Gross couldn’t find another firm willing to invest in one of his ideas alongside his incubator, he’d pull the plug.
One startup that made the cut was photo management software outfit Picasa. Gross launched the company in 2002, when he saw that digital cameras were about to take off. Google did, too—but initially had no image search function in its vaunted web crawler. Shortly before going public, the company reached out to Gross to see about making a deal; he was able to extract a swath of stock worth tens of millions at the time, and orders of magnitude more today.11
Google went public on August 19, 2004, jumping 18 percent in its first day of trading; neither Gross nor Shaq would reveal the precise valuation at which they got into Google, but they were well ahead of regular investors who purchased shares at the search giant’s debut. Within a decade, every $1 invested had turned into $15.12 Shaq had figured out one of the key advantages of his fame: leveraging celebrity to get in on winning companies before they’re publicly traded.
“It was presented to me, I knew it was gonna hit,” Shaq explains. “And I said, ‘Wow, I’ll try it.’ My only regret is that I wish I would have bought more.”13
But for the most part, Hollywood had soured on Silicon Valley in the wake of the dot-com crash. So, as tech stocks started to recover, with Google and its ilk taking off again, the entertainment industry was largely left on the sidelines of the new boom.
If Shaq was the most fearsome player in the NBA during the early 2000s, his equivalent in the world of full-time rappers had to be Curtis “50 Cent” Jackson. The musclebound former drug dealer crashed into the mainstream conversation with his 2003 multiplatinum album, Get Rich Or Die Tryin’, and within three years he’d generated half a billion dollars in sales across an empire that included recorded music, publishing, touring, sneakers, apparel, video games, and his own record label.
By the time he glowered out from the cover of Forbes in 2006, he’d taken to cruising New York in a $200,000 black Chevy Suburban featuring bulletproof windows and a bombproof undercarriage, the same model frequently used by U.S. military personnel in Iraq. 50 pocketed $41 million that year alone—but was eyeing more than cash. Buried toward the end of the story was a proclamation that revealed his proclivities: 50 predicted that the flavored water he’d been shilling in exchange for equity would one day be bought by Coca-Cola.
“I’m creating a foundation that will be around for a long time, because fame can come and go or get lost in the lifestyle and the splurging,” he said. “I never got into it for the music. I got into it for the business.”14
Vitaminwater was the beverage in question; 50 had received a piece of its parent company, Glacéau, in exchange for his support. The total amount, later reported at 5 percent, seemed ample compensation for the rapper as he launched his own Formula 50 flavor and became the face of the brand. 50’s manager, the late Chris Lighty, had arranged the deal with Rohan Oza, then the VP of marketing for Vitaminwater.15
Oza didn’t seem to have all that much in common with 50 on paper. Born to Indian parents, he grew up in Africa, earned his MBA at the University of Michigan, and got his start selling candy—working at M&M’s purveyor Mars. 50, on the other hand, grew up in a crack-wracked corner of Queens; with little formal education, his first job was selling cocaine on the streets of New York. Oza eventually ended up in Coca-Cola’s Powerade division, and that’s where his kinship with 50 kicked in.
“I wasn’t very good at following the rules,” Oza explains, insisting that—like 50—he intimidated too many people with his brash style. He made the jump to Glacéau in 2002 and within two years had decided his brand needed a hip-hop artist as its face. Weighing 50 and Jay-Z, Oza decided to first reach out to the former, given that both the rapper and the beverage company came from Queens. When they started talking numbers, Oza told 50 he couldn’t pay him much; the rapper said he’d happily bet on himself by taking equity.16
Soon 50 was starring in television commercials that raised both his profile and Vitaminwater’s. In one, drinking Formula 50 magically gives 50 Cent the ability to conduct a Beethoven symphony at a fancy concert hall. “Since he began drinking Vitaminwater Formula 50, he feels he’s up to the task,” an announcer proclaims, as 50 directs the string section to perform a remix of his hit “In da Club.”
He wasn’t the only celebrity with this sort of arrangement. Glacéau approached Shaq with the idea of doing commercials, but when the basketball player revealed his price, he received a hard no. As Shaq recalls, “They said, ‘We can’t pay that much, ’cause we’re paying 50 Cent.’” Several years before, Shaq might have scoffed at such a negotiating tactic. Instead, he kept listening, and soon Glacéau made an offer. Shaq accepted and eventually starred in an ad as a jockey riding a horse called Chunk of Love. Why? “They gave us a lot of stock.”17
While 50 Cent and Shaq were loading up on Vitaminwater equity, Horowitz found himself looking for a different sort of energy boost. Following the sale of his core Loudcloud business to EDS in 2002, shares of his newly minted Opsware plunged to $0.35 apiece as investors struggled to understand the rationale behind the big switch. The Nasdaq exchange informed him the company would be delisted if shares didn’t break the $1 mark within ninety days.18
That meant Horowitz needed to convince the markets, or at least one deep-pocketed investor, to start buying more Opsware stock. This time, Horowitz turned not to Ovitz but to another dealmaker who knew how to bring celebrity sizzle to Silicon Valley steak: Ron Conway, who counted Shaq and Sean Parker among his investing buddies. Horowitz explained that Opsware was actually in good shape, due to an agreement inked with EDS as part of the Loudcloud deal that promised Horowitz’s company $20 million in annual revenue. Yet Opsware’s share price indicated that investors inexplicably valued the company at just half its cash reserves—almost like saying a functioning car with $10,000 in the trunk was worth $5,000.
Conway recommended that Horowitz go see Herb Allen, the head of investment bank Allen & Company, and he arranged a meeting. Upon Horowitz’s arrival at Allen’s New York headquarters, the latter started things off by noting how much he trusted Conway and took his referrals seriously. Horowitz then dug into the story of Opsware, explaining why it was undervalued. Allen nodded through the presentation and told Horowitz he’d see what he could do. Over the next several months, Allen and his company started buying up Opsware stock, and in less than a year the price increased by an order of magnitude.
Even as he leaned on advisors like Conway and Ovitz to help with large-scale issues, Horowitz looked to the entertainment world for inspiration to help him deal with day-to-day operations. In one case, he noted that Boston Celtics coach Tommy Heinsohn had lost control of the team after his tactic of throwing temper tantrums got old and players no longer understood why he wanted them to do a particular thing. So Horowitz resolved to make sure all his employees knew not only what he wanted them to do but why—thereby empowering them—a hallmark of good organizations.19
Horowitz also had to learn to tone down some of the tendencies learned at home from his firebrand dad. “With my father, everything was an argument to the death,” he said. “My bar for ‘inflammatory’ was so high.”20 At one point, the younger Horowitz realized his penchant for profanity had created an environment of pervasive cursing in the office—and some level of debate among his employees as to whether or not that was acceptable. So he took a cue from the 1970s prison drama Short Eyes, which included a character whom the other inmates called “Cupcakes.”21
“We will allow profanity,” Horowitz told his employees, explaining that he didn’t want Opsware to lose out on top hires by creating a reputation as a prudish place. “This does not mean that you can use profanity to intimidate, sexually harass people, or do other bad things. In this way, profanity is no different from other language. For example, consider the word ‘cupcakes.’ It’s fine for me to say to Shannon, ‘Those cupcakes you baked look delicious.’ But it is not okay for me to say to Anthony, ‘Hey, Cupcakes, you look mighty fine in them jeans.’”
While Shaq and 50 Cent fixated on Vitaminwater, a startup that had nothing to do with technology, a new online platform sprouted in Southern California—one that would begin to cure creators of what proved to be just a temporary tech allergy. Chris DeWolfe and Tom Anderson founded Myspace during the summer of 2003 in Los Angeles, though it would soon prove attractive to its northern neighbors as well.
The site piggybacked on the success of Friendster—the early-aughts social network funded by Silicon Valley giants like Benchmark (known for its investments in Dropbox, Twitter, and Uber)—but presented itself as a band-focused destination where fans could come to learn more about their favorite acts. That, along with a heavy dose of user-generated photos that ranged from innocent selfies to soft-core porn, helped Myspace accumulate 33 million users in two years. Among them: bands from Depeche Mode to Weezer, who used the service to push new albums.22
“A lot of entertainers were [beginning to use] startups basically for amplification of their message, to be able to connect with fans on a closer basis without any intermediaries,” says Troy Carter, who was between stints managing Nelly and Lady Gaga at the time. “Myspace was the first wave of us really seeing it. Then, I think, founders at technology companies noticed the sort of fan base that a lot of these artists were bringing to their platforms and also created a lot of user stickiness as well. I think a lot of founders started to embrace it.”23
DeWolfe and Anderson were savvy when it came to conceiving and executing their idea, but not so much when it came to securing their personal stakes. First, they created Myspace beneath the umbrella of Intermix, the company where they worked, instead of starting it independently. Second, when they raised $11.5 million in 2005 from Silicon Valley venture firm Redpoint in exchange for 25 percent and a $46 million valuation, they agreed to a bizarre provision guaranteeing that, in the event of an Intermix sale, Myspace would garner a fixed price of $125 million. It was a complex process with a simpler, yet underwhelming, result: when Rupert Murdoch’s News Corp swooped in and bought Intermix for $580 million in June 2005, the founders shared a windfall of just $21.4 million, while Redpoint got $65 million.24
Even worse, DeWolfe and Anderson’s idea would soon be eclipsed by Facebook (they reportedly turned down an offer to buy Mark Zuckerberg’s company for $75 million in 2005). The social network sprung from a Harvard dorm room, founded by Zuck and several pals in 2004. That summer, Sean Parker—who’d bounced from his role as music industry villain to a new one as protégé of the aforementioned Conway (a Napster investor)—cold-emailed the company’s founders to arrange a meeting. By the end of the year, he’d joined as president, serving as a bridge between Facebook’s fresh-faced founders and the Silicon Valley giants who would become the social network’s biggest backers.
“Sean was pivotal in helping Facebook transform from a college project into a real company,” Zuckerberg later explained. “Perhaps more importantly, Sean helped ensure that anyone interested in investing in Facebook would not only buy into a company, but also a mission and vision of making the world more open through sharing.”25
As Facebook wormed its way from college campuses and high schools into the broader population in 2006, tech giants dangled increasingly large offers to buy the social network. Zuckerberg, contemplating ever larger bids, sought the counsel of Silicon Valley veteran Roger McNamee over one particularly tempting billion-dollar offer. The venture capitalist, who’d launched the firm Elevation Partners with Bono and several others in 2004, advised the young founder to hang on to his company; Zuckerberg followed his advice. McNamee became a mentor of sorts, eventually investing as an angel with Bono around 2007.26
Facebook, like Myspace before it, seemed to be part of a new group of tech companies that would prove useful to creators. Even so, Hollywood remained relatively lukewarm toward Silicon Valley and its latest exports. DFJ’s Roizen remembers a meeting with a big-shot talent agent in the mid-2000s who was toying with the idea of turning her life story into a television show—but he decided not to, upon closer inspection.
“What was the takeaway comment?” says Roizen, with a rhetorical flourish. “It was, generally speaking, ‘We don’t want to do a show about Silicon Valley because the people are less attractive [than in L.A.], they don’t seem to have as much sex, and they stare at computer screens all day. How can you even make a TV show out of that?’”27
Meanwhile, Vitaminwater surged in to the popular consciousness as its roster of celebrities appeared in a series of increasingly outrageous commercials. In one, Carrie Underwood, David Ortiz, Brian Urlacher, and Dwight Howard joined 50 Cent for cosmonaut training in Russia with the help of Glacéau’s flagship beverage. In another, 50 appeared alongside NBA Hall of Famer Steve Nash in a mock infomercial praising the benefits of creating an energy drink. “I used to have to grind to get my vitamins—till I made my own flavor of Vitaminwater,” says 50 in the spot. “Now I’m stanky rich!”
50 Cent would soon experience the distinction between rich and wealthy. In 2006, Glacéau clocked $355 million in annual revenue, forecasting a $700 million total the following year. Those sorts of numbers helped convince India’s Tata Tea to buy a 30 percent stake in the company for $677 million. Then, in May 2007, Coca-Cola—looking for a way to slice into PepsiCo’s lead in the noncarbonated beverage category—swooped in and bought Glacéau outright for $4.1 billion in cash.28
Tata Tea doubled the value of its investment in just a year, but 50 Cent did far better. In exchange for little more than his time, energy, and marketing savvy, the rapper walked away with about $100 million. The number has been reported as high as four times that sum and as little as one-third, but Oseary confirms the middle amount. He should know: former CAA agent Seth Rodsky gave him a chance to get in on Glacéau years earlier, but he declined, still smarting from the dot-com bust. “I was offered the deal when [50] did the deal,” explains Oseary. “The guy who brought me that deal…I say yes to him on everything now.”29
As for 50 Cent, the rapper became the scowling standard for leveraging star power. Soon he was expanding his portfolio from music, touring, and movies into a search for the next Vitaminwater—with his headphone line (SMS Audio), energy shots (5-Hour Energy competitor SK Energy) and, eventually, an investment in climate-controlled boxer briefs (Frigo). He even traveled to South Africa to meet with mining billionaire Patrice Motsepe with the goal of creating 50 Cent–branded platinum jewelry.
“People were talking about how much money I made” on Glacéau, 50 told me the following year. “But I was focused on the fact that $4.1 billion was made. I think I can do a bigger deal in the future.”30
A chastened Oseary refocused his efforts on the music business, where he was well positioned to replenish his coffers managing Madonna. The Material Girl racked up $280 million in pretax earnings from 2007 to 2010, per the estimates of Forbes, and Oseary earned an eight-figure commission. When Rodsky brought him another opportunity, Vita Coco, he invested $1.2 million at a $28 million valuation and brought in famous friends from Matthew McConaughey to Madonna herself. By 2014, Vita Coco was worth $665 million.31
Even Oseary’s Idealab investment was starting to look better as the 2000s wore on. Yahoo bought GoTo, rebranded as Overture, for $1.6 billion in 2003; Idealab got a $400 million cut, its best exit to date. As the decade drew to a close, the startup factory’s early investors, including Steven Spielberg and Michael Douglas, had clocked healthy returns. Says Gross: “They’ve all made their money back many times over.”32
Shaq, of course, cashed in on Vitaminwater as well. He wouldn’t reveal precise numbers, aside from saying his haul rivaled that of the best years of his playing career. And even though Glacéau wasn’t a tech startup, the success of 50 Cent, Shaq and others warmed the entertainment appetite toward taking equity over cash—a step that would help make creators more comfortable with the idea of plowing money into Silicon Valley upstarts.
Much like Gross, Horowitz gutted his way through the dot-com crash, keeping his company afloat through a combination of smarts, grit, and willingness to take advice from sources outside the Bay Area, like Ovitz. His shift from cloud computing company to software outfit worked. Within a few years, the market had recovered, leaving big tech companies free to pursue comparably large acquisitions. And that’s exactly what Hewlett-Packard did, buying Opsware for $1.6 billion.
Horowitz suddenly found himself more than just a centimillionaire on paper: he and Andreessen had filled up their coffers and now had the time and energy to become venture capitalists themselves. They’d sold Opsware at just the right moment—in late 2008, the Great Recession struck, sending the markets tumbling once again to dot-com-bust lows, and not just tech stocks. Financial firms like Lehman Brothers and Bear Stearns went belly-up, and for a moment it seemed the entire world economy was on the verge of a complete meltdown. Investors once again went scurrying to the sidelines, seeking safety in bonds, cash, and gold—while fleeing stocks, including tech companies, even though the market contagion mostly traced back to the housing and banking sectors.
Like Gross, the two Opsware veterans were bullish on the long-term headwinds in the business world, and in 2009, as the public markets bottomed out, they launched Andreessen Horowitz. The duo had a vision for the venture firm and how it would be different from its Silicon Valley peers. First, since it was established by entrepreneurs and not paper pushers, Andreessen Horowitz aimed to be founder-centric. That meant investing in startups whose creators were still in charge, and giving more founder-friendly terms than the competition when possible.
Horowitz figured founders had two major disadvantages: they didn’t necessarily have any management training, and they generally didn’t have networks as broad as veteran corporate CEOs. His solution was to build a venture firm that could help entrepreneurs in those areas by emulating Hollywood—specifically, Ovitz’s model for CAA.
Ovitz started his talent agency as a twenty-eight-year-old after leaving William Morris, then the top outfit in town—more a collection of loosely affiliated agents than a unified agency, something Ovitz was eager to change. To establish that culture, Ovitz and his colleagues at CAA deferred their salaries for several years, pouring their commissions back into the company—and a pot they’d share. Soon the agency was going head-to-head with William Morris in the battle for Hollywood’s top talent.
“We decided to copy CAA’s operating model nearly exactly,” Horowitz later wrote. “Michael thought it was a great idea, but he was the only one. Everyone else offered some variation of the following: ‘This is Silicon Valley, not Hollywood.’”33